Business Context and Reporting Period
Company: Oxygen Biotherapeutics, Inc. (formerly Synthetic Blood International, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: January 31, 2010
Business Stage: Development Stage Company
Primary Focus: Development of biotechnology products for oxygen delivery to tissue, including Oxycyte (oxygen carrier), Wundecyte (wound healing), and Dermacyte (topical cosmetic line). The company has no significant product revenue and relies on financing to fund clinical trials and regulatory approvals.
Key Financial Metrics
| Metric | Three Months Ended Jan 31, 2010 | Nine Months Ended Jan 31, 2010 | Balance Sheet (Jan 31, 2010) |
|---|---|---|---|
| Revenue | $0 | $0 | N/A |
| Net Loss | $(2,753,712) | $(7,739,602) | Accumulated Deficit: $(78,699,804) |
| Operating Expenses | $2,764,776 | $7,648,362 | N/A |
| Cash and Equivalents | N/A | N/A | $2,876,401 |
| Working Capital | N/A | N/A | $2,443,220 |
| Debt (Current + Long Term) | N/A | N/A | $2,672 (Convertible notes net of discount) |
| Shares Outstanding | N/A | N/A | 21,309,492 |
Note: The company reported no revenue for the periods presented. Interest expense for the nine months ended Jan 31, 2010, was $7,421,916, a significant decrease from the prior year due to the conversion of convertible notes in the previous fiscal year.
Material Changes vs. Prior Period
- Operating Expenses: Total operating expenses for the nine months ended Jan 31, 2010, were $7.65 million, compared to $6.44 million in the prior year.
- SG&A: Increased primarily due to higher salaries (headcount grew from 8 to 21), increased investor relations costs ($420,000 increase), and marketing costs for the new Dermacyte product line.
- R&D: Increased to $2.17 million from $0.97 million, driven by costs for the Dermacyte cosmetic development and clinical trials for Oxycyte in Switzerland and Israel.
- Interest Expense: Decreased significantly by approximately $10.1 million compared to the prior nine-month period. This reduction is attributed to the conversion of convertible notes to equity in the third quarter of fiscal 2009, which eliminated the associated amortization of debt discounts.
- Capital Structure: The company completed a 1-for-15 reverse stock split in November 2009. Additionally, the company raised approximately $9.7 million in net proceeds from the issuance of common stock under a Securities Purchase Agreement with the Vatea Fund.
- Warrant Exchange: The company repurchased and cancelled approximately 4.7 million warrants in exchange for cash ($2.8 million) and restricted common stock (2.36 million shares).
Outlook, Risks, and Management Commentary
- Going Concern: Management states that the company has an accumulated deficit of $78.7 million and expects to incur operating losses through the remainder of fiscal 2010. The filing raises substantial doubt about the company's ability to continue as a going concern, dependent on its ability to secure additional financing.
- Liquidity: With working capital of $2.4 million as of January 31, 2010, management believes it has sufficient capital to fund operations through the first quarter of fiscal 2011.
- Product Pipeline:
- Oxycyte: Phase II-b clinical trials for traumatic brain injury are underway in Switzerland and Israel. A Phase III study and FDA approval are required for commercialization.
- Dermacyte: Production of the first commercial cosmetic product began in September 2009. The company plans to market products via its website and distributors in fiscal 2011.
- Wundecyte: A 510K application was filed in July 2009. The company is designing animal trials to evaluate wound healing effectiveness.
- Internal Controls: Management concluded that disclosure controls and procedures were not effective as of January 31, 2010, due to material weaknesses in the control environment and financial reporting processes. Remediation efforts are underway, including hiring a new CFO and centralizing finance functions.
- Commitments: The company entered into a three-year exclusive supply agreement with Exflour, requiring annual payments of $100,000 for exclusivity rights.
Investor Verification Checklist
- Cash Runway: Verify if the $2.4 million working capital is sufficient to fund the ongoing Phase II-b trials and the launch of Dermacyte without immediate dilution.
- Financing Milestones: Confirm the status of the remaining milestones with the Vatea Fund, which could provide up to $15 million in additional funding if regulatory targets are met by September 2011.
- Internal Control Remediation: Monitor progress on fixing the material weaknesses in internal controls, as this impacts the reliability of future financial reporting.
- Revenue Realization: Assess the commercial viability of the Dermacyte product line, as the company currently has no revenue and relies entirely on speculative product development.
- Dilution Risk: Review the impact of outstanding options (1.07 million) and warrants (3.34 million) on future share count and earnings per share.